A “debt management plan” is a contract you make with your creditors if you can’t make on-time payments. This is a great way to effectively manage debt.
But there are pros and cons to this method.
Benefit #1: Pay off debt sooner
People on debt management plans are typically debt-free in about 2 to 5 years! This is easier to do with a management plan, because many creditors will lower interest rates, making payoff easier.
Benefit #2: Consolidations
One of the great things about being on a management plan is that all debts can be combined into one payment. That means high balances on multiple credit cards can be moved to one card, to minimize fees and interest.
Drawback #1: Strict approvals
Being approved for a debt management plan “depends more on your disposable income than the amount of debt you have,” according to Experian.
But most people who are in need of a debt management plan don’t have a bunch of disposable income.
Drawback #2: Only Non-priority debts
Only “non-priority” debts, like credit cards, bank loans or student loans, are accepted. Debts like child support, overdue rent, or mortgages are more serious debts and can’t be put on a debt management plan.
If you’re trying to manage overwhelming debt, do some research and see if a debt management plan could be right for you!